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US-UK negotiations continue despite mounting challenges

United States and British trade negotiators are actively preparing the groundwork for a bilateral trade agreement and holding a round of talks this week. But political challenges are mounting in the area of tariffs on spirits, food standards, digital taxation and, last but not least, Northern Ireland.

The United Kingdom’s negotiations towards a free trade agreement with the United States are continuing at pace. A a fourth round of bilateral talks is currently under way and due to conclude later this week.

But the talks have just bumped into a new obstacle: Britain’s current trade row with the European Union.

There have been hints throughout the Brexit process that the US Congress would not take kindly to any EU-UK settlement which created problems for Ireland by potentially threatening the Good Friday Agreement – the 1998 deal which normalised relations between the nationalist and loyalist communities in Northern Ireland.

But the disquiet in the US over the course which the EU-UK FTA talks are taking burst into the open on Tuesday (16 September), with the release of a highly critical letter to prime minister Boris Johnson by four prominent members of the House of Representatives.

No support for UK-US deal if Northern Ireland deal jeopardised

The letter was prompted by the publication last week of a draft UK Internal Market bill  which, by the government’s own admission, would contravene the terms of the EU-UK Withdrawal Agreement.

Four US Congressmen warned they would not support a US UK deal that would jeopardise the Good Friday Agreement.

The four Congressmen  said they were “disturbed” by the developments. One of the signatories is Richie Neal, who also chairs the House’s ‘Friends of Ireland’ caucus. In their view, London’s bill “could have disastrous consequences for the Good Friday Agreement.”

The letter then stated starkly: “To that end, we stand by the position made clear by the Speaker of the US House of Representatives Nancy Pelosi, who just this month reiterated that the US Congress will not support any free trade agreement between the UK and the US if the UK fails to preserve the gains of the Good Friday Agreement and broader peace process.”

The Congressional response to the UK’s stance on the Irish border question opens up a further area of jeopardy for the UK-US FTA talks, which were already not exactly short of complicated issues to address.

Market access offers exchanged

The latest round of talks has seen the UK and US exchange initial market access offers. As is always the case in the early stages of FTA negotiations, these offers are being treated as strictly confidential, and details of their content are unlikely to emerge for some time.

On the UK side, multiple issues have to be taken into account on the market access question. There is a strong political desire in London to be seen as more open for trade and business than the EU bloc which it has just left behind, and it has leeway to make valuable concessions on manufactured  goods.

But the US will be pressing in particular for preferential access to the UK’s agricultural markets, and this is a doubly complicated issue for the British side. It would imply not only cutting tariffs but also making changes to existing laws on food quality and standards – as Washington demands access for its hormone-treated beef and chemically-washed chicken.

Could ‘equivalence assessment’ resolve chicken row?

Which way will the UK jump on this?

The British government, which is under acute domestic political pressure on this issue, remains insistent that its ‘high’ food standards are not up for negotiation in the UK-US negotiations.

But there may be ways of squaring the circle.

The transatlantic business organisation BritishAmerican Business recently published a paper recommending “an equivalence assessment that qualifies whether US treatment practices satisfy standards used in the UK (and vice versa).”

This might offer a way out of the current cul-de-sac in which the US claims that its production standards are as good as those in the UK – while the UK side claims that US production methods, based on chemical pathogen reduction treatments, offer no guarantee that this is the case.

The BAB paper adds: “We feel the whole range of options, from labelling to conditional tariffs – while not desired – should be explored to break the stalemate on the issue.”

The idea of ‘conditional’ tariffs appears to hark back to the idea floated by former UK agriculture minister Theresa Villiers earlier this year, namely that a range of tariffs could be applied “on products that don’t meet our standards.”

Trade irritants still there

Of course, there is much more to the UK-US talks than just chlorinated chicken.

The UK’s Department of International Trade reported after the third round of talks in August that 21 separate workstreams were now under way in the negotiations, and that in many of these “positive progress continues to be made.”

DIT reported that most chapter areas were now “moving into the advanced stages of talks, with particularly detailed, text-based discussions taking place on Intellectual Property.”

But further trade irritants lie outside the scope of the bilateral negotiations. The UK is still pressurising Washington to lift the 25% tariffs which it is continuing to impose on Scotch whisky, as part of its WTO-sanctioned retaliation against Airbus subsidies, while the US is pushing London to reconsider the digital services tax which came into effect in April this year, and which is particularly aimed at US tech giants.

The question of how to apply tax rules for international digital providers is being discussed in a special OECD forum – but earlier this year the US walked out of the OECD process.

US election, TPA renewal on horizon

Close observers of the negotiations detect no sign of any slowing down in the pace of the negotiations, despite the fact that the US presidential election, which polls suggest may result in a change of administration in Washington, is only seven weeks away.

But both sides are conscious of the looming expiry of Trade Promotion Authority for the president in June 2021. This is the mechanism by which Congress permits the President to negotiate trade deals on its behalf, with Congress given a simple yes-no vote on any deals concluded.

“I don’t think it’s a hard deadline,” said one observer. “The TPA can be renewed – but a lot depends on who wins in November. There is a 90-day renewal notice period, and whoever wins the election would have to apply to Congress for an extension before 1 April next year. I certainly don’t think a deal can be tied up before then.”

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